Why are you NOT buying rental properties?

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mesaverde
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Re: Why are you NOT buying rental properties?

Post by mesaverde » Sun Jun 16, 2019 3:41 pm

samstar wrote:
Sun Jun 16, 2019 2:40 pm
mesaverde wrote:
Sun Jun 16, 2019 1:23 pm
samstar wrote:
Sun Jun 16, 2019 10:36 am
Those with more experience, any thoughts on what you would do?
Condo in a HCOL with plenty of jobs nearby, near public transit, etc.
mkt value to annual gross rent is about 25x
Long term tenant (no hassles in many years) so rent is kept about 10% below market.
Ltv about 35% with a low 3% rate.
Cash flow plus debt pay down after all costs is somewhere around 2.5% of the equity value.
I suspect in hcol areas, this is what numbers would look like for a lot of people except for potentially having a higher ltv. I don’t really see how it works unless you assume reasonable appreciation.
Are you sure the market value of the property is 25x annual gross rent? That does not seem right.
What you need to do is determine the CAP rate. It sounds like the Cap rate would be very low. Many won't bother with the hassle of a rental property if the cap rate is much below 10%. I recently sold a rental that had a cap rate of 5.5%... it was a former home & the numbers did not work for it to be a worthwhile rental.
Yeah, I’m fairly certain on the 25x. At full market rent, maybe it’s 22x. Condos in the area trade reasonably often without a lot of days on market, so it’s not too hard to know the market price. It’s also building in some conservatism from Zillow / Redfin prices for whatever those are worth. It’s vhcol area so that ratio is over 20x in most places.
Well without knowing the Cap rate it's hard to say whether it would be worth the hassle of renting it out. Even if the numbers look halfway decent, you have to factor in the hassle and risk. As a long term investment you'd be VERY LUCKY if you don't have to deal with evicting a tenant or a tenant grossly mistreating the property (damage can far exceed the deposit). Either can completely wipe out many many months of profit. And that does not even include periods of vacancy when you're trying to find a quality tenant. The problem with a vhcol area is that the decent tenants typically won't stay very long because it's just a matter of time before they buy their own place. And even the best of tenants will not treat the place as well as you would. I'm speaking from years of experience renting out a place in a vhcol area.
"Learn from the past, live in the present, plan for the future"

samstar
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Re: Why are you NOT buying rental properties?

Post by samstar » Sun Jun 16, 2019 3:54 pm

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randomguy
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Re: Why are you NOT buying rental properties?

Post by randomguy » Sun Jun 16, 2019 5:27 pm

samstar wrote:
Sun Jun 16, 2019 10:36 am
I don’t really see how it works unless you assume reasonable appreciation.
Hasn't pretty much every HCOL area had reasonable appreciation over the past 20 years? In LCOL areas it is all about making money on rents. In HCOL it is all about paying the mortgage with rents and making tons of money off appreciation. Both can make you a pile of money. The risks of both feel a lot different.

LawProf
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Re: Why are you NOT buying rental properties?

Post by LawProf » Sun Jun 16, 2019 5:53 pm

Leverage works, until it doesn't.

samstar
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Re: Why are you NOT buying rental properties?

Post by samstar » Sun Jun 16, 2019 6:12 pm

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samstar
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Re: Why are you NOT buying rental properties?

Post by samstar » Sun Jun 16, 2019 6:17 pm

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visualguy
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Re: Why are you NOT buying rental properties?

Post by visualguy » Sun Jun 16, 2019 7:07 pm

samstar wrote:
Sun Jun 16, 2019 6:12 pm
randomguy wrote:
Sun Jun 16, 2019 5:27 pm
samstar wrote:
Sun Jun 16, 2019 10:36 am
I don’t really see how it works unless you assume reasonable appreciation.
Hasn't pretty much every HCOL area had reasonable appreciation over the past 20 years? In LCOL areas it is all about making money on rents. In HCOL it is all about paying the mortgage with rents and making tons of money off appreciation. Both can make you a pile of money. The risks of both feel a lot different.
Correct. It’s been fantastic the last 20 years, helped by mega cities outperforming the rest of the country economically and also partially by a big reduction in mortgage rates. I’m having a hard time convincing myself the next 20 years will have as much appreciation as the last 20. My baseline assumption is appreciation will equal inflation plus 1-2%. Returns in that scenario are ok, not great.
Quite possible, but even then, it's a decent return when taking into account appreciation, rent, leverage, and tax treatment. The stock/bond markets are forecast to provide very low real returns over the next decade... It makes sense to diversify to real estate - it's generally a good move if you have the resources and the willingness to spend some time on it.

samstar
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Re: Why are you NOT buying rental properties?

Post by samstar » Sun Jun 16, 2019 7:23 pm

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Last edited by samstar on Thu Jul 11, 2019 2:16 am, edited 1 time in total.

visualguy
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Re: Why are you NOT buying rental properties?

Post by visualguy » Sun Jun 16, 2019 7:30 pm

samstar wrote:
Sun Jun 16, 2019 7:23 pm
BH folks hate single stock risk. Single property rental risk is far more concentrated risk. You can spend your effort trying to pick a single reit instead of vnq. Many single reits have had spectacular returns.
How is it so concentrated? The bet is on the economy and supply/demand situation in an area. You may be betting on West LA, or the Bay Area peninsula, or Manhattan, or Washington DC, or wherever continuing to be economically successful and desirable, but that isn't all that concentrated.

randomguy
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Re: Why are you NOT buying rental properties?

Post by randomguy » Sun Jun 16, 2019 10:07 pm

visualguy wrote:
Sun Jun 16, 2019 7:07 pm
samstar wrote:
Sun Jun 16, 2019 6:12 pm
randomguy wrote:
Sun Jun 16, 2019 5:27 pm
samstar wrote:
Sun Jun 16, 2019 10:36 am
I don’t really see how it works unless you assume reasonable appreciation.
Hasn't pretty much every HCOL area had reasonable appreciation over the past 20 years? In LCOL areas it is all about making money on rents. In HCOL it is all about paying the mortgage with rents and making tons of money off appreciation. Both can make you a pile of money. The risks of both feel a lot different.
Correct. It’s been fantastic the last 20 years, helped by mega cities outperforming the rest of the country economically and also partially by a big reduction in mortgage rates. I’m having a hard time convincing myself the next 20 years will have as much appreciation as the last 20. My baseline assumption is appreciation will equal inflation plus 1-2%. Returns in that scenario are ok, not great.
Quite possible, but even then, it's a decent return when taking into account appreciation, rent, leverage, and tax treatment. The stock/bond markets are forecast to provide very low real returns over the next decade... It makes sense to diversify to real estate - it's generally a good move if you have the resources and the willingness to spend some time on it.
1-2% isn't the worst case. The worst case is more like -3%/year for a decade or so to go along with falling rents as prices correct from the bubble they are in. That might not be such a great investment. Of course we may or may not be in a bubble. The thing with trends is that they can last a long time. You sort of feel like an idiot not going nuts on FANG stocks (or microsoft, intel, cisco, and dell for the older timers:)) and they beat the markets for a decade. But then one day things change and the outperformance stops. Sometimes it is a big bang that is obvious. A lot of times it is more of a wimper.

Real estate is a good move if you execute well and the markets you invest in do ok. A lot of people try rentals. Some make good money. Some don't.

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Sandtrap
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Re: Why are you NOT buying rental properties?

Post by Sandtrap » Sun Jun 16, 2019 10:12 pm

randomguy wrote:
Sun Jun 16, 2019 10:07 pm
visualguy wrote:
Sun Jun 16, 2019 7:07 pm
samstar wrote:
Sun Jun 16, 2019 6:12 pm
randomguy wrote:
Sun Jun 16, 2019 5:27 pm
samstar wrote:
Sun Jun 16, 2019 10:36 am
I don’t really see how it works unless you assume reasonable appreciation.
Hasn't pretty much every HCOL area had reasonable appreciation over the past 20 years? In LCOL areas it is all about making money on rents. In HCOL it is all about paying the mortgage with rents and making tons of money off appreciation. Both can make you a pile of money. The risks of both feel a lot different.
Correct. It’s been fantastic the last 20 years, helped by mega cities outperforming the rest of the country economically and also partially by a big reduction in mortgage rates. I’m having a hard time convincing myself the next 20 years will have as much appreciation as the last 20. My baseline assumption is appreciation will equal inflation plus 1-2%. Returns in that scenario are ok, not great.
Quite possible, but even then, it's a decent return when taking into account appreciation, rent, leverage, and tax treatment. The stock/bond markets are forecast to provide very low real returns over the next decade... It makes sense to diversify to real estate - it's generally a good move if you have the resources and the willingness to spend some time on it.
1-2% isn't the worst case. The worst case is more like -3%/year for a decade or so to go along with falling rents as prices correct from the bubble they are in. That might not be such a great investment. Of course we may or may not be in a bubble. The thing with trends is that they can last a long time. You sort of feel like an idiot not going nuts on FANG stocks (or microsoft, intel, cisco, and dell for the older timers:)) and they beat the markets for a decade. But then one day things change and the outperformance stops. Sometimes it is a big bang that is obvious. A lot of times it is more of a wimper.

Real estate is a good move if you execute well and the markets you invest in do ok. A lot of people try rentals. Some make good money. Some don't.
+1
It indeed has been a good run.
I've watched and done well with it since the 70's and watched relatives cash in since the 60's. The gains have been astronomical.
I've seen a 30 unit apartment building go from $275,000 to millions.
But, I'm not sure if that is ever going to repeat. Things are very different now and going forward. Margins are much much tighter.
j :happy
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CurlyDave
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Re: Why are you NOT buying rental properties?

Post by CurlyDave » Sun Jun 16, 2019 10:18 pm

mesaverde wrote:
Sun Jun 16, 2019 3:41 pm

... Even if the numbers look halfway decent, you have to factor in the hassle and risk. As a long term investment you'd be VERY LUCKY if you don't have to deal with evicting a tenant or a tenant grossly mistreating the property (damage can far exceed the deposit). Either can completely wipe out many many months of profit. And that does not even include periods of vacancy when you're trying to find a quality tenant. The problem with a vhcol area is that the decent tenants typically won't stay very long because it's just a matter of time before they buy their own place. And even the best of tenants will not treat the place as well as you would. I'm speaking from years of experience renting out a place in a vhcol area.
I have been an equities investor for over 60 years and a residential rentals owner for over 40 years. Both in vhcol and medium col areas.

I think there is a tendency for landlords to treat ordinary wear and tear as "damage". Rental units need to be repainted every 5-10 years, new carpet every 5 years or so, and appliances wear out. It is difficult at best to maintain a rented unit, so there is a strong tendency to defer maintenance until there is a vacancy and then it is all lumped together as "damage". Sort of along the lines of; "I put a new diswasher in this place 8 years ago and the tenants have ruined it." Ignoring the fact that my personal dishwasher only lasted 5 years.

I put rental grade carpets, and appliances in rentals, not the higher end material I put in personal residences. The only place where spending more on materials in a rental is worthwhile is in paint. Over 80% of the cost of repainting is in labor -- the very best grade of paint not only reduces the labor involved, by covering better, but also lasts longer by being more washable.

As far as evictions go, I have not had to evict anyone in over 25 years and I will never evict anyone again. That does not mean I have never removed tenants, but I do not do it by eviction. Think about the costs of evicting a tenant, and the potential damage they can do. Instead, I always go to visit a tenant, and in a very non-confrontational way offer a reasonable amount of cash money (about 2/3 of a month's rent) if they will leave promptly. I always have a deadline, and I always ask to do a walk through. Then I tell them if they turn in the keys on a specific date, 3 or 4 days in the future, and there is no more damage, I will hand them cash. And, I always go through with the deal. Best of all, I have never had any deliberate damage after making this kind of a deal. Sometimes they will ask for more time, and I will give them up to a week, but never any longer. I don't make any threats and never mention eviction. that possibility is already on their mind.

Of course, if someone does not pay rent, I start the paperwork for eviction and give them the legal notices, but depending on the state, an eviction can take many months. My way gets the unit rented again in very short order.

Most landlords have a psychological block against making this kind of a deal, but it is by far the least expensive, lowest risk, and best way of removing a problem tenant. Most of the time they leave thinking I am the salt of the earth instead of telling all of their friends how horrible I am, and I get the unit back with very little damage.

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willthrill81
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Re: Why are you NOT buying rental properties?

Post by willthrill81 » Sun Jun 16, 2019 10:31 pm

Despite all of the press we've heard about how many of those who are wealthy have a significant allocation to real estate, I can't help but believe that there is some survivor bias going on there. We know that there are many folks who have lost a lot in real estate. Many farmers have nearly all of their net worth in real estate, yet many of those same folks are barely squeaking by financially.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

visualguy
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Re: Why are you NOT buying rental properties?

Post by visualguy » Sun Jun 16, 2019 10:43 pm

randomguy wrote:
Sun Jun 16, 2019 10:07 pm
1-2% isn't the worst case. The worst case is more like -3%/year for a decade or so to go along with falling rents as prices correct from the bubble they are in. That might not be such a great investment. Of course we may or may not be in a bubble. The thing with trends is that they can last a long time. You sort of feel like an idiot not going nuts on FANG stocks (or microsoft, intel, cisco, and dell for the older timers:)) and they beat the markets for a decade. But then one day things change and the outperformance stops. Sometimes it is a big bang that is obvious. A lot of times it is more of a wimper.

Real estate is a good move if you execute well and the markets you invest in do ok. A lot of people try rentals. Some make good money. Some don't.
I don't see how the decline scenario you mentioned is credible in the major economic centers of the US coasts, for example. If the US economy gets into so much trouble that real estate even in those locations tanks, the stock market is the last place you would want to be in because it will be a lot worse.

You do need significant resources to be able to invest in those areas, and you collect mostly in appreciation rather than income - those are the main problems there, and it's definitely not realistic for everyone.

ERguy101
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Re: Why are you NOT buying rental properties?

Post by ERguy101 » Sun Jun 16, 2019 11:05 pm

CurlyDave wrote:
Sat Jun 15, 2019 1:01 am
Yup, done right rentals are a part time job. BUT, they are a part time job where I am the boss, where I can't be fired, and where I have a lot of leeway to set my own hours. And, the hourly pay beats the stuffing out of most of the part time jobs available to retired people.
Thank you for writing this. This may single handedly get me into rental properties. I'm an ER doctor, and we all always feel disposable. Patient's disrespect us, they'll sue us over anything or file complaints, or write libelous things on the internet all day long if we don't give them whatever they want. We all stay credentialed at multiple hospitals because you never know when one hospital may screw you over. I'm credentialed at 4 currently. Two of the hospitals have shaky financial footing and borderline psychotic administration so it's always interesting. My point being, I do feel unsettled sometimes, and being in rental properties, even if it's not the most lucrative thing on earth, would sure put me in charge in a position that I could never be relieved from. (I've never been fired from anything in my life, but I'm acutely aware that I could easily be screwed over at any point.)

So thank you for your insight.

randomguy
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Re: Why are you NOT buying rental properties?

Post by randomguy » Sun Jun 16, 2019 11:45 pm

visualguy wrote:
Sun Jun 16, 2019 10:43 pm
randomguy wrote:
Sun Jun 16, 2019 10:07 pm
1-2% isn't the worst case. The worst case is more like -3%/year for a decade or so to go along with falling rents as prices correct from the bubble they are in. That might not be such a great investment. Of course we may or may not be in a bubble. The thing with trends is that they can last a long time. You sort of feel like an idiot not going nuts on FANG stocks (or microsoft, intel, cisco, and dell for the older timers:)) and they beat the markets for a decade. But then one day things change and the outperformance stops. Sometimes it is a big bang that is obvious. A lot of times it is more of a wimper.

Real estate is a good move if you execute well and the markets you invest in do ok. A lot of people try rentals. Some make good money. Some don't.
I don't see how the decline scenario you mentioned is credible in the major economic centers of the US coasts, for example. If the US economy gets into so much trouble that real estate even in those locations tanks, the stock market is the last place you would want to be in because it will be a lot worse.

You do need significant resources to be able to invest in those areas, and you collect mostly in appreciation rather than income - those are the main problems there, and it's definitely not realistic for everyone.
Is that because it can't happen or you don't want to believe it can happen? Isn't one of the big signs of a bubble is people thinking you can't lose money cause things always go up?:) If you look at regional real estate history in the US, drops like what I have describe have happened to numerous markets. Texas in the mid 80s when oil burst. LA in the early 90s when we cut defense spending. New England for who knows in the late 80s. Notice how unrelated stock market performance is. That is both good and bad. Personally if we don't have decent stock market performance, I am unclear where any of the money to support the housing market is going to come from.

Are we in a bubble? Who the heck knows. You can look at Case-Shiller charts and go the increase in housing prices since 2000 is nuts. You can also make up stories about why the increase makes sense. When we look back in 30 years, it will be obvious what the right choice to make would have been.

visualguy
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Re: Why are you NOT buying rental properties?

Post by visualguy » Mon Jun 17, 2019 12:34 am

randomguy wrote:
Sun Jun 16, 2019 11:45 pm
Is that because it can't happen or you don't want to believe it can happen? Isn't one of the big signs of a bubble is people thinking you can't lose money cause things always go up?:) If you look at regional real estate history in the US, drops like what I have describe have happened to numerous markets. Texas in the mid 80s when oil burst. LA in the early 90s when we cut defense spending. New England for who knows in the late 80s. Notice how unrelated stock market performance is. That is both good and bad. Personally if we don't have decent stock market performance, I am unclear where any of the money to support the housing market is going to come from.

Are we in a bubble? Who the heck knows. You can look at Case-Shiller charts and go the increase in housing prices since 2000 is nuts. You can also make up stories about why the increase makes sense. When we look back in 30 years, it will be obvious what the right choice to make would have been.
High prices don't mean a "bubble". It's certainly not a mortgage debt bubble in those areas at this time. What other bubble could it be?

As to industries going away - yes, that happens, but the desirable areas recover and continue to thrive. If you buy in the areas where many people actually want to live and work, you'll do fine. I don't know what people will be working on exactly in LA, the SF Bay Area, Seattle, etc. in 30 years, but I do know that a big chunk of the US economy will continue to be there (where else?), and people will continue to want to live there, and do whatever it is they're doing. I don't care about what it is they do, as long as that's where they want to live and work.

I think it makes sense to hold both real estate (in good locations) and stocks. If I had to pick just one, I would pick real estate because of the lower volatility and the fact that people still need to live somewhere even when times are bad. The US is a huge country, but it doesn't have that many all-around desirable locations, and the number becomes quite small when you take climate into account.

phantom0308
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Re: Why are you NOT buying rental properties?

Post by phantom0308 » Mon Jun 17, 2019 12:40 am

LawProf wrote:
Sun Jun 16, 2019 5:53 pm
Leverage works, until it doesn't.
Working against you is still working. 😈

bohica
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Re: Why are you NOT buying rental properties?

Post by bohica » Mon Jun 17, 2019 12:56 am

I have owned rental properties, brokered mortgages, bought and sold mobile homes. Completely out of real estate now. Are you aware that if your tenants are arrested for doing drugs on your property the government can confiscate your property with out giving you the time of day?

In my area they are trying to get law passed that landlords have to be licensed ! If you go to court the judge wants to take care of the "poor tenant" against the greedy landlord.

The numbers over a period of time without a property manager went about 35% for vacancy and repairs, the rest went for financing, whatever left over was return on investment.

Bet you don't know how together rid of "cat odor".

Rented a small commercial building for 45 years, 5 tenants in that time, when went to sell it took 19 months with it being vacant during that time.

Starfish
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Re: Why are you NOT buying rental properties?

Post by Starfish » Mon Jun 17, 2019 2:29 am

smitcat wrote:
Sun Jun 16, 2019 6:27 am
Starfish wrote:
Sat Jun 15, 2019 7:21 pm
smitcat wrote:
Sat Jun 15, 2019 6:47 pm
willthrill81 wrote:
Sat Jun 15, 2019 6:39 pm
tomtoms wrote:
Sat Jun 15, 2019 6:25 pm
(5) Buy below market value.
I don't think that's been possible for at least a couple of years in our area. Houses are on the market for days, sometimes hours, and are regularly bought with cash and no contingencies, not even an inspection. Rents are increasing but certainly not at the same pace as property appreciation; most single-family homes are renting monthly for about .6% of their value.
In general all you need to do is wait - the cycle always repeats itself.
What cycle?
My area is exactly as Wilthrill81 describes and there no cycle ever. There were some very short small blips, at most.
Every area I have seen has a cycle ….
To have a cycle one has to identify at least one previous period of the boom-bust cycle.

Kuna_Papa_Wengi
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Re: Why are you NOT buying rental properties?

Post by Kuna_Papa_Wengi » Mon Jun 17, 2019 7:41 am

samstar wrote:
Sun Jun 16, 2019 3:54 pm
I think we’re in agreement. Cap rate is about 3%. Leverage is modest. Not really worth it. There’s only been one tenant in the last decade and almost no hassles. Inertia is the issue. Don’t want to pay taxes on selling and don’t really want to 1031 into another rental.
How much equity do you have? Have you thought about a 1031 into a triple net lease? Possibly a better return with fewer landlord headaches. I haven't done it personally, but it's something I'm looking into for the future when I have more cash.

smitcat
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Re: Why are you NOT buying rental properties?

Post by smitcat » Mon Jun 17, 2019 7:43 am

Starfish wrote:
Mon Jun 17, 2019 2:29 am
smitcat wrote:
Sun Jun 16, 2019 6:27 am
Starfish wrote:
Sat Jun 15, 2019 7:21 pm
smitcat wrote:
Sat Jun 15, 2019 6:47 pm
willthrill81 wrote:
Sat Jun 15, 2019 6:39 pm


I don't think that's been possible for at least a couple of years in our area. Houses are on the market for days, sometimes hours, and are regularly bought with cash and no contingencies, not even an inspection. Rents are increasing but certainly not at the same pace as property appreciation; most single-family homes are renting monthly for about .6% of their value.
In general all you need to do is wait - the cycle always repeats itself.
What cycle?
My area is exactly as Wilthrill81 describes and there no cycle ever. There were some very short small blips, at most.
Every area I have seen has a cycle ….
To have a cycle one has to identify at least one previous period of the boom-bust cycle.
What exact area are you speaking about then?

CurlyDave
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Re: Why are you NOT buying rental properties?

Post by CurlyDave » Mon Jun 17, 2019 10:29 am

Kuna_Papa_Wengi wrote:
Mon Jun 17, 2019 7:41 am

...How much equity do you have? Have you thought about a 1031 into a triple net lease? Possibly a better return with fewer landlord headaches. I haven't done it personally, but it's something I'm looking into for the future when I have more cash.
Triple net leases scare the heck out of me. And I am a risk taker.

20+ years ago a business partner and I seriously looked into a triple net lease. Too big a deal for either one of us alone, but we could do it together.

I got cold feet and we passed on the deal, which was the best decision we could have made. It was a K-mart, which closed down about a year after we looked at it. When a store closes you have no income from the lease, but still have to make payments on the mortgage. Personal bankruptcy is about 2 months down the road unless you can fill the space, which is a huge white elephant.

Other triple net opportunities were mostly retail. In hindsight, the only Amazon-proof ones were gas stations, but these have the leaky tank issue looming over their heads.

Triple net leases usually tie the investor to retail -- if you understand this business there are probably opportunities, but the people who understand it best, the store operators, mostly choose to pay good returns to investors who take a lot of risk. These guys know more about their business than I do.

Kuna_Papa_Wengi
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Re: Why are you NOT buying rental properties?

Post by Kuna_Papa_Wengi » Mon Jun 17, 2019 11:25 am

CurlyDave wrote:
Mon Jun 17, 2019 10:29 am
Kuna_Papa_Wengi wrote:
Mon Jun 17, 2019 7:41 am

...How much equity do you have? Have you thought about a 1031 into a triple net lease? Possibly a better return with fewer landlord headaches. I haven't done it personally, but it's something I'm looking into for the future when I have more cash.
Triple net leases scare the heck out of me. And I am a risk taker.

20+ years ago a business partner and I seriously looked into a triple net lease. Too big a deal for either one of us alone, but we could do it together.

I got cold feet and we passed on the deal, which was the best decision we could have made. It was a K-mart, which closed down about a year after we looked at it. When a store closes you have no income from the lease, but still have to make payments on the mortgage. Personal bankruptcy is about 2 months down the road unless you can fill the space, which is a huge white elephant.

Other triple net opportunities were mostly retail. In hindsight, the only Amazon-proof ones were gas stations, but these have the leaky tank issue looming over their heads.

Triple net leases usually tie the investor to retail -- if you understand this business there are probably opportunities, but the people who understand it best, the store operators, mostly choose to pay good returns to investors who take a lot of risk. These guys know more about their business than I do.
Yes, there are definitely risks you have to evaluate. I'm mostly looking at fast food. My reasoning is that it's not something that faces an Amazon threat like retail does. And there is demand for the product even in a troubled economy. Gas stations are similar in that regard, but there are environmental risks.

RobLyons
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Re: Why are you NOT buying rental properties?

Post by RobLyons » Mon Jun 17, 2019 11:27 am

1. Can't afford rental property in my area
2. Don't want the headaches of bad tenants, busted pipes at 1am, etc.
3. Don't know enough about the subject to attempt
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michaeljc70
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Re: Why are you NOT buying rental properties?

Post by michaeljc70 » Mon Jun 17, 2019 11:46 am

I always wanted to own rental property and even came close to buying a couple 3 flats years ago. In the big city where I live, it is very hard to cash flow positive (or even come close) on anything I'd want to own (I don't want to be a slum landlord). That is the main reason I don't buy them. It seems the economics of rentals varies quite a bit depending on location.

Starfish
Posts: 1175
Joined: Wed Aug 15, 2018 6:33 pm

Re: Why are you NOT buying rental properties?

Post by Starfish » Mon Jun 17, 2019 12:06 pm

smitcat wrote:
Mon Jun 17, 2019 7:43 am
Starfish wrote:
Mon Jun 17, 2019 2:29 am
smitcat wrote:
Sun Jun 16, 2019 6:27 am
Starfish wrote:
Sat Jun 15, 2019 7:21 pm
smitcat wrote:
Sat Jun 15, 2019 6:47 pm


In general all you need to do is wait - the cycle always repeats itself.
What cycle?
My area is exactly as Wilthrill81 describes and there no cycle ever. There were some very short small blips, at most.
Every area I have seen has a cycle ….
To have a cycle one has to identify at least one previous period of the boom-bust cycle.
What exact area are you speaking about then?
Bay area for example, but I am sure there are plenty of others.

smitcat
Posts: 3579
Joined: Mon Nov 07, 2016 10:51 am

Re: Why are you NOT buying rental properties?

Post by smitcat » Mon Jun 17, 2019 12:17 pm

Starfish wrote:
Mon Jun 17, 2019 12:06 pm
smitcat wrote:
Mon Jun 17, 2019 7:43 am
Starfish wrote:
Mon Jun 17, 2019 2:29 am
smitcat wrote:
Sun Jun 16, 2019 6:27 am
Starfish wrote:
Sat Jun 15, 2019 7:21 pm


What cycle?
My area is exactly as Wilthrill81 describes and there no cycle ever. There were some very short small blips, at most.
Every area I have seen has a cycle ….
To have a cycle one has to identify at least one previous period of the boom-bust cycle.
What exact area are you speaking about then?
Bay area for example, but I am sure there are plenty of others.
Per your request....
https://www.bayareamarketreports.com/tr ... and-a-baby

Starfish
Posts: 1175
Joined: Wed Aug 15, 2018 6:33 pm

Re: Why are you NOT buying rental properties?

Post by Starfish » Mon Jun 17, 2019 12:26 pm

smitcat wrote:
Mon Jun 17, 2019 12:17 pm
Starfish wrote:
Mon Jun 17, 2019 12:06 pm
smitcat wrote:
Mon Jun 17, 2019 7:43 am
Starfish wrote:
Mon Jun 17, 2019 2:29 am
smitcat wrote:
Sun Jun 16, 2019 6:27 am


Every area I have seen has a cycle ….
To have a cycle one has to identify at least one previous period of the boom-bust cycle.
What exact area are you speaking about then?
Bay area for example, but I am sure there are plenty of others.
Per your request....
https://www.bayareamarketreports.com/tr ... and-a-baby
I see a graph going up almost continuously, and in very few years staying constant. Absolutely no boom bust in the general acceptance of the expression. What am I supposed to see?
BTW that is the entire bay area, but the "good" parts of it don't even have that kind of minimal variation. The bad years (like 2009) are years when the prices did not go up, not when they went down.

smitcat
Posts: 3579
Joined: Mon Nov 07, 2016 10:51 am

Re: Why are you NOT buying rental properties?

Post by smitcat » Mon Jun 17, 2019 12:30 pm

Starfish wrote:
Mon Jun 17, 2019 12:26 pm
smitcat wrote:
Mon Jun 17, 2019 12:17 pm
Starfish wrote:
Mon Jun 17, 2019 12:06 pm
smitcat wrote:
Mon Jun 17, 2019 7:43 am
Starfish wrote:
Mon Jun 17, 2019 2:29 am


To have a cycle one has to identify at least one previous period of the boom-bust cycle.
What exact area are you speaking about then?
Bay area for example, but I am sure there are plenty of others.
Per your request....
https://www.bayareamarketreports.com/tr ... and-a-baby
I see a graph going up almost continuously, and in very few years staying constant. Absolutely no boom bust in the general acceptance of the expression. What am I supposed to see?
BTW that is the entire bay area, but the "good" parts of it don't even have that kind of minimal variation. The bad years (like 2009) are years when the prices did not go up, not when they went down.

Everyone sees what they want to see - I suppose the bay area will continue upwards forever with no decrease in escalation.
I guess that will leave most properties near the 8 figure area within 20 years.
YMMV

ohai
Posts: 821
Joined: Wed Dec 27, 2017 2:10 pm

Re: Why are you NOT buying rental properties?

Post by ohai » Mon Jun 17, 2019 12:36 pm

Real estate median price indexes like those are highly misleading, as they don't show you returns on same units. Every year, developers build slightly nicer condos. Older condos held year over year are not comparable and sometimes even depreciate.

germark
Posts: 54
Joined: Thu Sep 06, 2018 2:18 pm

Re: Why are you NOT buying rental properties?

Post by germark » Mon Jun 17, 2019 12:42 pm

There are two reasons that I am not buying rental properties:
  • liability
  • estate planning
Liability
I have a cousin who makes his living doing real estate investing. He describes a type of person / lawyer who sues for every little thing, in the hope of one day "striking it rich". I don't know how often he encounters this, but it sounds like it has happened more than once, and that it's a real time / money sink when litigation does occur. I don't think that he's ever lost a case, but he's been doing it long enough to have adopted an attitude like "one day I'll probably lose something important." This just sounds unpleasant to me, and I'm glad that I don't have to deal with things like this in my career.

Estate planning
I have a friend whose parents were doctors, and owned one rental property. When they passed, it was up to my friend and his siblings to learn how to manage the property and decide what to do with it. As you might imagine, when my friend's parents died, learning property management was the last thing he wanted to do. There were some disputes with his siblings too. My impression is that my friend's parents did something with tax law so that they property was passed to my friend and his siblings at a very low tax rate. However, I think that, for my friend, the extra money wound up not being worth it for him. It was just a lot of headaches at a time when he wanted to grieve.

Of course, there are pros and cons with everything. And everyone has a different experience and a different personality. I've never invested in real estate myself. And after seeing these experiences, I think that the cons of real estate investing just don't outweigh the potential upside for me.

Good luck.

michaeljc70
Posts: 5222
Joined: Thu Oct 15, 2015 3:53 pm

Re: Why are you NOT buying rental properties?

Post by michaeljc70 » Mon Jun 17, 2019 12:57 pm

germark wrote:
Mon Jun 17, 2019 12:42 pm
There are two reasons that I am not buying rental properties:
  • liability
  • estate planning
Liability
I have a cousin who makes his living doing real estate investing. He describes a type of person / lawyer who sues for every little thing, in the hope of one day "striking it rich". I don't know how often he encounters this, but it sounds like it has happened more than once, and that it's a real time / money sink when litigation does occur. I don't think that he's ever lost a case, but he's been doing it long enough to have adopted an attitude like "one day I'll probably lose something important." This just sounds unpleasant to me, and I'm glad that I don't have to deal with things like this in my career.

Estate planning
I have a friend whose parents were doctors, and owned one rental property. When they passed, it was up to my friend and his siblings to learn how to manage the property and decide what to do with it. As you might imagine, when my friend's parents died, learning property management was the last thing he wanted to do. There were some disputes with his siblings too. My impression is that my friend's parents did something with tax law so that they property was passed to my friend and his siblings at a very low tax rate. However, I think that, for my friend, the extra money wound up not being worth it for him. It was just a lot of headaches at a time when he wanted to grieve.

Of course, there are pros and cons with everything. And everyone has a different experience and a different personality. I've never invested in real estate myself. And after seeing these experiences, I think that the cons of real estate investing just don't outweigh the potential upside for me.

Good luck.
Couldn't they just sell it? Or hire a property management firm?

visualguy
Posts: 1392
Joined: Thu Jan 30, 2014 1:32 am

Re: Why are you NOT buying rental properties?

Post by visualguy » Mon Jun 17, 2019 1:00 pm

smitcat wrote:
Mon Jun 17, 2019 12:30 pm
Starfish wrote:
Mon Jun 17, 2019 12:26 pm
smitcat wrote:
Mon Jun 17, 2019 12:17 pm
Starfish wrote:
Mon Jun 17, 2019 12:06 pm
smitcat wrote:
Mon Jun 17, 2019 7:43 am

What exact area are you speaking about then?
Bay area for example, but I am sure there are plenty of others.
Per your request....
https://www.bayareamarketreports.com/tr ... and-a-baby
I see a graph going up almost continuously, and in very few years staying constant. Absolutely no boom bust in the general acceptance of the expression. What am I supposed to see?
BTW that is the entire bay area, but the "good" parts of it don't even have that kind of minimal variation. The bad years (like 2009) are years when the prices did not go up, not when they went down.
Everyone sees what they want to see - I suppose the bay area will continue upwards forever with no decrease in escalation.
I guess that will leave most properties near the 8 figure area within 20 years.
YMMV
Historical annual appreciation there has been around 6%-7% for decades. If you told someone with a $750K house 20 years ago in 1999 that their 50 year old shack would be worth $2.6M in 2019, they would think you are crazy, but here we are. Will it be worth $8M in 2039? I doubt it, but there's no reason for a "bust" either, just a somewhat lower rate of appreciation. Maybe 2% real instead of 4% real, for example.

BuckyBadger
Posts: 954
Joined: Tue Nov 01, 2011 11:28 am

Re: Why are you NOT buying rental properties?

Post by BuckyBadger » Mon Jun 17, 2019 1:32 pm

I just read through this thread thinking every new post from the OP would be the one that he seemed to be building up in in his very first post:

I Made Millions Investing In Real Estate and You Can To!! Ask me how! Three easy payments of $49.99 +s/h. I've rarely seen someone try to sell something SO HARD to people who weren't interested in buying. Also amusing how apart from some VERY rosy assumptions and projections in the first thread he's provided exactly zero real numbers to indicate how he's making all this money.

I don't have any personal experience OWNING rental properties but I have absolutely no desire to be a landlord because I was the daughter of one.

My dad had rental properties all through my childhood and youth. He finally got rid of the last one maybe 10 years ago? I think he had two duplexes and a 3 or 4 unit house. One was in an iffy part of town. The other ones were in pretty reasonable suburbs. He ended up holding the mortgages on at least two of the unit when he finally did manage to sell them.

I suppose you could say it "worked out for him" but the desire he had to get out of them would indicate that they weren't quite the easy money that the OP is suggesting.

My dad is super handy and could do pretty much everything himself outside of foundation work. General plumbing, electrical, maintenance. He can do it all. I mowed the lawns for him for years. I remember weekends spent with my dad cleaning and repainting between tenants. A very long weekend when we tore down and rebuild a deck. He had some very long term tenants and some short term once. Some good and some bad. We had a lot of stuff in our kitchen especially that was stuff my dad found when cleaning after tenants had moved out.

In addition to the weekends, dad frequently got called to one of his places in the evening or at night. In our own house we're happy to live with something until it's convenient to fix it. Not so as a tenant. They seem happy to call at any hour of the day or night about something that could have waited until morning.

But if my dad had to pay every time someone needed something fixed? Or repaired between tenants? No way he would have made a profit. Without his child labor to mow lawns, rebuild decks, and spackel and paint walls? Would certainly have made less? If he had to hire a manages to skim a percent off the top of all his profits? No way.

Real estate may or may not work out for someone.

But it's INSANE to paint the rosy picture that the OP is so stuck to. Sure - it's great if you can get 4% a year appreciation, always have rents that cover every single one of your expenses, never have a vacancy, never have a delinquent tenant, never have to repair something that costs a boat load of money...

Even stupid things can be made to sound reasonable if you make enough "assumptions" about them.

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willthrill81
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Location: USA

Re: Why are you NOT buying rental properties?

Post by willthrill81 » Mon Jun 17, 2019 2:04 pm

BuckyBadger wrote:
Mon Jun 17, 2019 1:32 pm
I don't have any personal experience OWNING rental properties but I have absolutely no desire to be a landlord because I was the daughter of one.

My dad had rental properties all through my childhood and youth. He finally got rid of the last one maybe 10 years ago? I think he had two duplexes and a 3 or 4 unit house. One was in an iffy part of town. The other ones were in pretty reasonable suburbs. He ended up holding the mortgages on at least two of the unit when he finally did manage to sell them.

I suppose you could say it "worked out for him" but the desire he had to get out of them would indicate that they weren't quite the easy money that the OP is suggesting.

My dad is super handy and could do pretty much everything himself outside of foundation work. General plumbing, electrical, maintenance. He can do it all. I mowed the lawns for him for years. I remember weekends spent with my dad cleaning and repainting between tenants. A very long weekend when we tore down and rebuild a deck. He had some very long term tenants and some short term once. Some good and some bad. We had a lot of stuff in our kitchen especially that was stuff my dad found when cleaning after tenants had moved out.

In addition to the weekends, dad frequently got called to one of his places in the evening or at night. In our own house we're happy to live with something until it's convenient to fix it. Not so as a tenant. They seem happy to call at any hour of the day or night about something that could have waited until morning.

But if my dad had to pay every time someone needed something fixed? Or repaired between tenants? No way he would have made a profit. Without his child labor to mow lawns, rebuild decks, and spackel and paint walls? Would certainly have made less? If he had to hire a manages to skim a percent off the top of all his profits? No way.
My in-laws ran a mobile home community for years, and despite doing all the work themselves and being financially successful with it, they sold it when they retired and never looked back. Nor did they recommend it to their children.

Real estate can be a worthwhile financial endeavor, but, as I noted above, it seems to me like a part-time job that might become a full-time job.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Lextalionis
Posts: 5
Joined: Wed Jun 12, 2019 4:46 pm

Re: Why are you NOT buying rental properties?

Post by Lextalionis » Mon Jun 17, 2019 2:08 pm

CurlyDave wrote:
Sun Jun 16, 2019 10:18 pm
mesaverde wrote:
Sun Jun 16, 2019 3:41 pm

... Even if the numbers look halfway decent, you have to factor in the hassle and risk. As a long term investment you'd be VERY LUCKY if you don't have to deal with evicting a tenant or a tenant grossly mistreating the property (damage can far exceed the deposit). Either can completely wipe out many many months of profit. And that does not even include periods of vacancy when you're trying to find a quality tenant. The problem with a vhcol area is that the decent tenants typically won't stay very long because it's just a matter of time before they buy their own place. And even the best of tenants will not treat the place as well as you would. I'm speaking from years of experience renting out a place in a vhcol area.
I have been an equities investor for over 60 years and a residential rentals owner for over 40 years. Both in vhcol and medium col areas.

I think there is a tendency for landlords to treat ordinary wear and tear as "damage". Rental units need to be repainted every 5-10 years, new carpet every 5 years or so, and appliances wear out. It is difficult at best to maintain a rented unit, so there is a strong tendency to defer maintenance until there is a vacancy and then it is all lumped together as "damage". Sort of along the lines of; "I put a new diswasher in this place 8 years ago and the tenants have ruined it." Ignoring the fact that my personal dishwasher only lasted 5 years.

I put rental grade carpets, and appliances in rentals, not the higher end material I put in personal residences. The only place where spending more on materials in a rental is worthwhile is in paint. Over 80% of the cost of repainting is in labor -- the very best grade of paint not only reduces the labor involved, by covering better, but also lasts longer by being more washable.

As far as evictions go, I have not had to evict anyone in over 25 years and I will never evict anyone again. That does not mean I have never removed tenants, but I do not do it by eviction. Think about the costs of evicting a tenant, and the potential damage they can do. Instead, I always go to visit a tenant, and in a very non-confrontational way offer a reasonable amount of cash money (about 2/3 of a month's rent) if they will leave promptly. I always have a deadline, and I always ask to do a walk through. Then I tell them if they turn in the keys on a specific date, 3 or 4 days in the future, and there is no more damage, I will hand them cash. And, I always go through with the deal. Best of all, I have never had any deliberate damage after making this kind of a deal. Sometimes they will ask for more time, and I will give them up to a week, but never any longer. I don't make any threats and never mention eviction. that possibility is already on their mind.

Of course, if someone does not pay rent, I start the paperwork for eviction and give them the legal notices, but depending on the state, an eviction can take many months. My way gets the unit rented again in very short order.

Most landlords have a psychological block against making this kind of a deal, but it is by far the least expensive, lowest risk, and best way of removing a problem tenant. Most of the time they leave thinking I am the salt of the earth instead of telling all of their friends how horrible I am, and I get the unit back with very little damage.
Brilliant! I have added this to my landlord knowledge base. Reminds me of:
“The supreme art of war is to subdue the enemy without fighting.”
― Sun Tzu, The Art of War

germark
Posts: 54
Joined: Thu Sep 06, 2018 2:18 pm

Re: Why are you NOT buying rental properties?

Post by germark » Mon Jun 17, 2019 3:56 pm

michaeljc70 wrote:
Mon Jun 17, 2019 12:57 pm
germark wrote:
Mon Jun 17, 2019 12:42 pm
There are two reasons that I am not buying rental properties:
  • liability
  • estate planning
Liability
...

Estate planning
I have a friend whose parents were doctors, and owned one rental property. When they passed, it was up to my friend and his siblings to learn how to manage the property and decide what to do with it. As you might imagine, when my friend's parents died, learning property management was the last thing he wanted to do. There were some disputes with his siblings too. My impression is that my friend's parents did something with tax law so that they property was passed to my friend and his siblings at a very low tax rate. However, I think that, for my friend, the extra money wound up not being worth it for him. It was just a lot of headaches at a time when he wanted to grieve.

Of course, there are pros and cons with everything. And everyone has a different experience and a different personality. I've never invested in real estate myself. And after seeing these experiences, I think that the cons of real estate investing just don't outweigh the potential upside for me.

Good luck.
Couldn't they just sell it? Or hire a property management firm?
They did wind up selling it. I don't know if they hired a property management firm.

I don't know all the details (this happened to my friend, not me), but my impression is that he and his siblings weren't particularly close to begin with, so coming to a decision about it wasn't particularly easy for them. And, again, it came at the worst possible time for them (at the same time they were dealing with the stress of their parents dying).

I've never bought or sold real estate myself, but my impression is that the process was quite involved. It wasn't like, say, putting something for sale on ebay. Or selling a stock or mutual fund. Which is the extent of my experience with selling things :D

I guess the key point is that this thread is about "why aren't you buying rentals?" And one reason for me is that it makes estate planning complicated. My impression is that my friend and his siblings weren't as interested in the rental business as their parents were.

germark
Posts: 54
Joined: Thu Sep 06, 2018 2:18 pm

Re: Why are you NOT buying rental properties?

Post by germark » Mon Jun 17, 2019 4:07 pm

visualguy wrote:
Mon Jun 17, 2019 1:00 pm
smitcat wrote:
Mon Jun 17, 2019 12:30 pm
Starfish wrote:
Mon Jun 17, 2019 12:26 pm
smitcat wrote:
Mon Jun 17, 2019 12:17 pm
Starfish wrote:
Mon Jun 17, 2019 12:06 pm


Bay area for example, but I am sure there are plenty of others.
Per your request....
https://www.bayareamarketreports.com/tr ... and-a-baby
I see a graph going up almost continuously, and in very few years staying constant. Absolutely no boom bust in the general acceptance of the expression. What am I supposed to see?
BTW that is the entire bay area, but the "good" parts of it don't even have that kind of minimal variation. The bad years (like 2009) are years when the prices did not go up, not when they went down.
Everyone sees what they want to see - I suppose the bay area will continue upwards forever with no decrease in escalation.
I guess that will leave most properties near the 8 figure area within 20 years.
YMMV
Historical annual appreciation there has been around 6%-7% for decades. If you told someone with a $750K house 20 years ago in 1999 that their 50 year old shack would be worth $2.6M in 2019, they would think you are crazy, but here we are. Will it be worth $8M in 2039? I doubt it, but there's no reason for a "bust" either, just a somewhat lower rate of appreciation. Maybe 2% real instead of 4% real, for example.
I've always assumed that housing prices in the bay area are closely tied to the tech economy. Yes, the tech sector had a crash around 2000, but it also rebounded - and then some. I mean, what's going on in bay area tech seems like a once in a generation thing to me. Which is probably leading to the increase in prices.

Whenever people talk about the bay area I also think about Detroit. I'm not an economic historian, but my impression is that during the heyday of the automobile industry Detroit had fantastic growth. And then that industry stopped doing so well, and the city went down with it.

Presumably at some point the current tech scene will stop growing so quickly, or will contract on a permanent basis. When that happens, I assume that housing prices will go down too. It's just not clear to me if that is the only thing that will lead to house prices decreasing.

I think that there are a lot of national / state parks in that area, which people could vote to rezone to be residential. And that would probably sharply increase supply which would decrease prices too.

michaeljc70
Posts: 5222
Joined: Thu Oct 15, 2015 3:53 pm

Re: Why are you NOT buying rental properties?

Post by michaeljc70 » Mon Jun 17, 2019 4:10 pm

germark wrote:
Mon Jun 17, 2019 3:56 pm
michaeljc70 wrote:
Mon Jun 17, 2019 12:57 pm
germark wrote:
Mon Jun 17, 2019 12:42 pm
There are two reasons that I am not buying rental properties:
  • liability
  • estate planning
Liability
...

Estate planning
I have a friend whose parents were doctors, and owned one rental property. When they passed, it was up to my friend and his siblings to learn how to manage the property and decide what to do with it. As you might imagine, when my friend's parents died, learning property management was the last thing he wanted to do. There were some disputes with his siblings too. My impression is that my friend's parents did something with tax law so that they property was passed to my friend and his siblings at a very low tax rate. However, I think that, for my friend, the extra money wound up not being worth it for him. It was just a lot of headaches at a time when he wanted to grieve.

Of course, there are pros and cons with everything. And everyone has a different experience and a different personality. I've never invested in real estate myself. And after seeing these experiences, I think that the cons of real estate investing just don't outweigh the potential upside for me.

Good luck.
Couldn't they just sell it? Or hire a property management firm?
They did wind up selling it. I don't know if they hired a property management firm.

I don't know all the details (this happened to my friend, not me), but my impression is that he and his siblings weren't particularly close to begin with, so coming to a decision about it wasn't particularly easy for them. And, again, it came at the worst possible time for them (at the same time they were dealing with the stress of their parents dying).

I've never bought or sold real estate myself, but my impression is that the process was quite involved. It wasn't like, say, putting something for sale on ebay. Or selling a stock or mutual fund. Which is the extent of my experience with selling things :D

I guess the key point is that this thread is about "why aren't you buying rentals?" And one reason for me is that it makes estate planning complicated. My impression is that my friend and his siblings weren't as interested in the rental business as their parents were.
The vast majority of people I know that have died owned a home that had to be sold by the heirs. Sure, if it is 16 apartment buildings to deal with it is more complicated. If it is a couple small rentals I don't see that as being a big deal. You call a realtor. Of course we can go at any time, but if you sell them before you are old (use whatever definition you want), that will minimize the risk further.

One caveat is, if you sell them you pay taxes on any gain. If you die the heirs inherit them at the stepped up basis. I have a friend that has a lot of rentals and he is facing this. His heirs are similarly aged and wouldn't want to keep them. He can sell them and pay the tax or leave them to them essentially tax free but then they will be dealing with selling all kinds of stuff they don't know anything about (probably quickly just to be done with it).

Kiter
Posts: 119
Joined: Wed Nov 19, 2014 8:21 pm

Re: Why are you NOT buying rental properties?

Post by Kiter » Mon Jun 17, 2019 4:18 pm

We have enough properties at the moment ,plan on waiting until my market gets HOT again or circumstances change to sell .

Topic Author
tomtoms
Posts: 146
Joined: Wed Mar 06, 2013 11:56 pm

Re: Why are you NOT buying rental properties?

Post by tomtoms » Mon Jun 17, 2019 4:19 pm

BuckyBadger wrote:
Mon Jun 17, 2019 1:32 pm
I just read through this thread thinking every new post from the OP would be the one that he seemed to be building up in in his very first post:

I Made Millions Investing In Real Estate and You Can To!! Ask me how! Three easy payments of $49.99 +s/h. I've rarely seen someone try to sell something SO HARD to people who weren't interested in buying. Also amusing how apart from some VERY rosy assumptions and projections in the first thread he's provided exactly zero real numbers to indicate how he's making all this money.

I don't have any personal experience OWNING rental properties but I have absolutely no desire to be a landlord because I was the daughter of one.

My dad had rental properties all through my childhood and youth. He finally got rid of the last one maybe 10 years ago? I think he had two duplexes and a 3 or 4 unit house. One was in an iffy part of town. The other ones were in pretty reasonable suburbs. He ended up holding the mortgages on at least two of the unit when he finally did manage to sell them.

I suppose you could say it "worked out for him" but the desire he had to get out of them would indicate that they weren't quite the easy money that the OP is suggesting.

My dad is super handy and could do pretty much everything himself outside of foundation work. General plumbing, electrical, maintenance. He can do it all. I mowed the lawns for him for years. I remember weekends spent with my dad cleaning and repainting between tenants. A very long weekend when we tore down and rebuild a deck. He had some very long term tenants and some short term once. Some good and some bad. We had a lot of stuff in our kitchen especially that was stuff my dad found when cleaning after tenants had moved out.

In addition to the weekends, dad frequently got called to one of his places in the evening or at night. In our own house we're happy to live with something until it's convenient to fix it. Not so as a tenant. They seem happy to call at any hour of the day or night about something that could have waited until morning.

But if my dad had to pay every time someone needed something fixed? Or repaired between tenants? No way he would have made a profit. Without his child labor to mow lawns, rebuild decks, and spackel and paint walls? Would certainly have made less? If he had to hire a manages to skim a percent off the top of all his profits? No way.

Real estate may or may not work out for someone.

But it's INSANE to paint the rosy picture that the OP is so stuck to. Sure - it's great if you can get 4% a year appreciation, always have rents that cover every single one of your expenses, never have a vacancy, never have a delinquent tenant, never have to repair something that costs a boat load of money...

Even stupid things can be made to sound reasonable if you make enough "assumptions" about them.
Don’t take this the wrong way but have you considered your dad is not a good real estate investor?

And yes, real estate investing is not difficult for me but like I had previously stated, I come from a family with strong business background.

renue74
Posts: 1589
Joined: Tue Apr 07, 2015 7:24 pm

Re: Why are you NOT buying rental properties?

Post by renue74 » Mon Jun 17, 2019 4:33 pm

michaeljc70 wrote:
Mon Jun 17, 2019 4:10 pm
germark wrote:
Mon Jun 17, 2019 3:56 pm
michaeljc70 wrote:
Mon Jun 17, 2019 12:57 pm
germark wrote:
Mon Jun 17, 2019 12:42 pm
There are two reasons that I am not buying rental properties:
  • liability
  • estate planning
Liability
...

Estate planning
I have a friend whose parents were doctors, and owned one rental property. When they passed, it was up to my friend and his siblings to learn how to manage the property and decide what to do with it. As you might imagine, when my friend's parents died, learning property management was the last thing he wanted to do. There were some disputes with his siblings too. My impression is that my friend's parents did something with tax law so that they property was passed to my friend and his siblings at a very low tax rate. However, I think that, for my friend, the extra money wound up not being worth it for him. It was just a lot of headaches at a time when he wanted to grieve.

Of course, there are pros and cons with everything. And everyone has a different experience and a different personality. I've never invested in real estate myself. And after seeing these experiences, I think that the cons of real estate investing just don't outweigh the potential upside for me.

Good luck.
Couldn't they just sell it? Or hire a property management firm?
They did wind up selling it. I don't know if they hired a property management firm.

I don't know all the details (this happened to my friend, not me), but my impression is that he and his siblings weren't particularly close to begin with, so coming to a decision about it wasn't particularly easy for them. And, again, it came at the worst possible time for them (at the same time they were dealing with the stress of their parents dying).

I've never bought or sold real estate myself, but my impression is that the process was quite involved. It wasn't like, say, putting something for sale on ebay. Or selling a stock or mutual fund. Which is the extent of my experience with selling things :D

I guess the key point is that this thread is about "why aren't you buying rentals?" And one reason for me is that it makes estate planning complicated. My impression is that my friend and his siblings weren't as interested in the rental business as their parents were.
The vast majority of people I know that have died owned a home that had to be sold by the heirs. Sure, if it is 16 apartment buildings to deal with it is more complicated. If it is a couple small rentals I don't see that as being a big deal. You call a realtor. Of course we can go at any time, but if you sell them before you are old (use whatever definition you want), that will minimize the risk further.

One caveat is, if you sell them you pay taxes on any gain. If you die the heirs inherit them at the stepped up basis. I have a friend that has a lot of rentals and he is facing this. His heirs are similarly aged and wouldn't want to keep them. He can sell them and pay the tax or leave them to them essentially tax free but then they will be dealing with selling all kinds of stuff they don't know anything about (probably quickly just to be done with it).
I've bought a couple rental houses from estates. You are correct, basically the heirs handed it off to a real estate agent to dispose of at market rates.

What I've seen is that if an older person has rental property that the desire to optimize profit is not there as much. When a tenant leaves, the older owner will take their time refreshing a home or try to find vendors. They can sometimes be vacant for a while.

I own 10 rentals and I'm 99% sure my kids never want anything to do with them. I'm 45 and my plan is to keep them for another 10 years or so and then slowly sell them off and retire. I don't wish to have rental property while I'm retired....unless something changes in my forecast.

randomguy
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Re: Why are you NOT buying rental properties?

Post by randomguy » Mon Jun 17, 2019 4:35 pm

tomtoms wrote:
Mon Jun 17, 2019 4:19 pm

Don’t take this the wrong way but have you considered your dad is not a good real estate investor?

And yes, real estate investing is not difficult for me but like I had previously stated, I come from a family with strong business background.
Great. You should do real estate full time since it is something you are good at. Should be trivial to build a business that makes you millions/year given the leverage available in real estate. Tons of people will provide you with capital given your skills and extensive track record. Most people are are just going to be average though. They are going to overpay when buying, rent for too little, get exploited by tenants, and overcharged by contractors.

visualguy
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Re: Why are you NOT buying rental properties?

Post by visualguy » Mon Jun 17, 2019 4:45 pm

germark wrote:
Mon Jun 17, 2019 4:07 pm
I've always assumed that housing prices in the bay area are closely tied to the tech economy. Yes, the tech sector had a crash around 2000, but it also rebounded - and then some. I mean, what's going on in bay area tech seems like a once in a generation thing to me. Which is probably leading to the increase in prices.

Whenever people talk about the bay area I also think about Detroit. I'm not an economic historian, but my impression is that during the heyday of the automobile industry Detroit had fantastic growth. And then that industry stopped doing so well, and the city went down with it.

Presumably at some point the current tech scene will stop growing so quickly, or will contract on a permanent basis. When that happens, I assume that housing prices will go down too. It's just not clear to me if that is the only thing that will lead to house prices decreasing.

I think that there are a lot of national / state parks in that area, which people could vote to rezone to be residential. And that would probably sharply increase supply which would decrease prices too.
Yes, it's tied to the tech economy to a significant extent, but there are also the climate, natural beauty, outdoors activities, diversity, etc. which lure people of means there. The technology industry isn't going away - it's the future almost by definition. The world isn't going non-tech, it's going more advanced tech. The emphasis changes with time - semiconductors, networking, internet, social networking, mobile, AI, etc. but it's still tech and it still happens there. Even electric cars and autonomous driving...

The parks in the area are not going to be developed - they're on mountains, dangerous seismic faults, and watersheds.

There are other economic centers which are good investments in terms of appreciation, by the way. The Bay Area isn't the only one...

Topic Author
tomtoms
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Re: Why are you NOT buying rental properties?

Post by tomtoms » Mon Jun 17, 2019 4:49 pm

randomguy wrote:
Mon Jun 17, 2019 4:35 pm
tomtoms wrote:
Mon Jun 17, 2019 4:19 pm

Don’t take this the wrong way but have you considered your dad is not a good real estate investor?

And yes, real estate investing is not difficult for me but like I had previously stated, I come from a family with strong business background.
Great. You should do real estate full time since it is something you are good at. Should be trivial to build a business that makes you millions/year given the leverage available in real estate. Tons of people will provide you with capital given your skills and extensive track record. Most people are are just going to be average though. They are going to overpay when buying, rent for too little, get exploited by tenants, and overcharged by contractors.
What is wrong with me saying it is not difficult for me? There are things I am good at. This is one of them.

Actually I don’t mind spending more time doing real estate. I have found my niche and if there are opportunities to expand, I am all for it.

Starfish
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Re: Why are you NOT buying rental properties?

Post by Starfish » Mon Jun 17, 2019 4:58 pm

smitcat wrote:
Mon Jun 17, 2019 12:30 pm
Starfish wrote:
Mon Jun 17, 2019 12:26 pm
smitcat wrote:
Mon Jun 17, 2019 12:17 pm
Starfish wrote:
Mon Jun 17, 2019 12:06 pm
smitcat wrote:
Mon Jun 17, 2019 7:43 am


What exact area are you speaking about then?
Bay area for example, but I am sure there are plenty of others.
Per your request....
https://www.bayareamarketreports.com/tr ... and-a-baby
I see a graph going up almost continuously, and in very few years staying constant. Absolutely no boom bust in the general acceptance of the expression. What am I supposed to see?
BTW that is the entire bay area, but the "good" parts of it don't even have that kind of minimal variation. The bad years (like 2009) are years when the prices did not go up, not when they went down.

Everyone sees what they want to see - I suppose the bay area will continue upwards forever with no decrease in escalation.
I guess that will leave most properties near the 8 figure area within 20 years.
YMMV
You are talking about cycles and than switch to "it cannot increase continuously at this rate".
Guess what, 10 years ago, 20 years ago, 30 years ago people were saying the same.
None of us has absolutely no idea about what will happen in the next years or decades. Why pretend that you do? What about the economy? do you also know if it can keep growing at the historical rate for the next 50 years?

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Johnsson
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Re: Why are you NOT buying rental properties?

Post by Johnsson » Mon Jun 17, 2019 5:08 pm

tomtoms wrote:
Mon Jun 17, 2019 4:49 pm
What is wrong with me saying it is not difficult for me? There are things I am good at. This is one of them.

Actually I don’t mind spending more time doing real estate. I have found my niche and if there are opportunities to expand, I am all for it.
It's wonderful things are going well for you!!

Others on this forum also have a strong business background/acumen and KNOW FROM EXPERIENCE rentals are fraught with risk that is often realized when least expected in the worst ways. Many decent seeming people with wonderful credit scores are 'pigs' who can and will trash a rental, zeroing out years of income, in a stroke.

There are truly fortunes to be made... for those willing to devote their lives (24/7, 365) to the process.

There's a reason the families of those who own rentals want no part of it... they have seen years of lost 'quality of life' for rental income. Not a fair trade IMHO (speaking from my own profitable experience which has not been as trouble-free as yours).

Topic Author
tomtoms
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Re: Why are you NOT buying rental properties?

Post by tomtoms » Mon Jun 17, 2019 5:13 pm

Johnsson wrote:
Mon Jun 17, 2019 5:08 pm
tomtoms wrote:
Mon Jun 17, 2019 4:49 pm
What is wrong with me saying it is not difficult for me? There are things I am good at. This is one of them.

Actually I don’t mind spending more time doing real estate. I have found my niche and if there are opportunities to expand, I am all for it.
It's wonderful things are going well for you!!

Others on this forum also have a strong business background/acumen and KNOW FROM EXPERIENCE rentals are fraught with risk that is often realized when least expected in the worst ways. Many decent seeming people with wonderful credit scores are 'pigs' who can and will trash a rental, zeroing out years of income, in a stroke.

There are truly fortunes to be made... for those willing to devote their lives (24/7, 365) to the process.

There's a reason the families of those who own rentals want no part of it... they have seen years of lost 'quality of life' for rental income. Not a fair trade IMHO (speaking from my own profitable experience which has not been as trouble-free as yours).
I make sure my property manager know to only rent it out to people with good credit. If they trashed my place, I am going to trash their credit.

I am not naive to think I won’t ever have bad tenants. That is why I put away 20-25% of rent money for maintenance cost and vacancy. I also have umbrella insurance.

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Johnsson
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Re: Why are you NOT buying rental properties?

Post by Johnsson » Mon Jun 17, 2019 5:18 pm

tomtoms wrote:
Mon Jun 17, 2019 5:13 pm
I make sure my property manager know to only rent it out to people with good credit. If they trashed my place, I am going to trash their credit.

I am not naive to think I won’t ever have bad tenants. That is why I put away 20-25% of rent money for maintenance cost and vacancy. I also have umbrella insurance.
'Experience is the most efficient teacher of all things,' Pliny the Elder

Good luck to you.

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